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When it comes to business, a trust can be useful. This is especially the case if you’re thinking of what comes next for your company after you step aside, or if you run a family business and you want to continue to keep it for future generations.
But what is a trust? In what way can it be useful for you? This guide looks at trusts used for business means and how it could fit into your plans.
What is Trust and How Could It Help Your Business?
A trust is a legal arrangement that is designed to manage a modern business’ assets and distribute its income for the benefit of someone else – and this is important to note as the person who is receiving the benefit of the trust is known as the beneficiary.
There are two other parties to be aware of when introducing a trust to your business:
1. The Trustee
The trustee is the person or legal entity that manages the trust according to the terms set out in the deed.
2. The Settlor
The settlor is the person who signs the trust deed. They are an unrelated third party who puts forward the settlement sum.
In terms of using a trust in a business setting, the trustee manages the business for the beneficiary’s benefit. Here, the trustee has legal ownership and control of the business’ property and other assets, and both the resodential property and commercial property assets will eventually belong to the beneficiary (or beneficiaries). In addition, the trustee must act in the best interests of the beneficiary.
There are different types of trust. The two that tend to apply in business are discretionary trusts and unit trusts.
With discretionary ones, the trustee has discretion over who receives what’s held within the trust. They are limited by what’s covered in the deed, however, and specialist trusts solicitors can talk you through how this works when you’re setting up your business trust structure. There are also unit trusts, where beneficiaries receive the benefits of the trust based on how many units they hold.
What are the Advantages of a Trust?
There are several pros of introducing a trust to your business:
1. Plan ahead
If you want to keep your business in the family, placing the assets into a trust means that you can control what happens when you die. This can be especially important if you need to organise succession in a way that protects your business interests and ensures your company goes to the people you want it to.
2. Tax planning
Beneficiaries must pay income tax on what they receive from a trust, so trustees can decide how much to distribute based on how it will be taxed.
3. Protect your assets
Any legal action taken against a beneficiary won’t affect the business’ assets as the trustee technically owns these.